Can Campbell (CPB) Q3 Earnings Sustain A Solid Surprise Trend?

Campbell Soup Company (NYSE:CPB) is scheduled to release third-quarter fiscal 2017 results on May 19. The big question facing investors is whether this food products company will be able to deliver a positive earnings surprise in the quarter to be reported.

Campbell Soup has delivered back-to-back positive earnings surprises in the last two quarters. The Zacks Consensus Estimate for the third-quarter and fiscal 2017 has been stable over the last 30 days. However, the current Zacks Consensus Estimate of 64 cents per share for the third quarter reflects a year-over-year decline of 1.5%. Nonetheless, analysts polled by Zacks expect revenues of $1.9 billion, almost in line with the year-ago quarter.

Factors Influencing this Quarter

Campbell Soup’s shares have gained 5.1% in the last six months, outperforming the Zacks categorized Food – Miscellaneous/Diversified industry’s growth of 2.3%.

This could be attributable to the company’s impressive growth efforts and robust cost savings, which helped it to top earnings estimates in the last two quarters. Notably, Campbell is ahead of schedule with its cost-savings plan, which not only continued driving its gross margin expansion, but also encouraged management to raise its savings target. These factors, along with Campbell’s prudent investment and strategic efforts toward product innovation and brand building, bode well for the upcoming results.

However, the performance of the company’s Campbell Fresh (C- Fresh) division has been disappointing of late. This is mainly accountable to weak carrot sales and constraints arising from the Bolthouse Farms Protein PLUS drinks recall made in Jun 2016. Though the company has appointed a new management team for this segment, as part of its various initiatives to revive C-Fresh’s performance, it still expects recovery at the segment to be slower than anticipated.

In fact, it doesn’t expect this segment to witness growth this fiscal year, which remains a major threat to the company’s overall top line. Nonetheless, solid momentum across its core U.S. soup business, new product launches and solid strategies led management to retain its fiscal 2017 view.

Given such mixed factors, let’s wait and see if Campbell can manage to maintain its positive earnings streak this time around.

Earnings Whispers

Our proven model does not conclusively show that Campbell Soup to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: Campbell Soup currently has an Earnings ESP of 0.00%. This is because both, the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 64 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Campbell Soup’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Wal-Mart Stores, Inc. (NYSE:WMT) , scheduled to release earnings on May 18, currently has an Earnings ESP of +1.04% and a Zacks Rank #3.

Lowe's Companies, Inc. (NYSE:LOW) , slated to release earnings on May 24, currently has an Earnings ESP of +0.94% and a Zacks Rank #3.

Best Buy Co., Inc. (NYSE:BBY) , slated to release earnings on May 25, currently has an Earnings ESP of +10.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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